Firm size, January and pre-holiday effects : existence and possible explainations in the Singapore market.

Author

Chua, Chin Heng.

Lee, Kim Loong.

Date of Issue

1996

School

College of Business (Nanyang Business School)

Abstract

One of the dominant themes in the academic literature since the 1960s has been the concept of an efficient capital market. Efficient market hypothesis indicates that public information, be it past prices or dividend announcements, is fairly rapidly incorporated in security prices. Recently, certain apparent major irregularities have been detected in the capital markets. These irregularities have been persistent and of such a large order of magnitude that their existence could not be ignored.
This report sets out with the objective of testing three such anomalies — firm size, January and pre-holiday effects. Both the size and the tum-of-the-year effects have received much attention in the financial literature. Branch (1977), Reinganum (1981) and Keim (1983) have all documented such calendar time seasonalities in the US stock market. On the other hand, the high returns accruing to trading days prior to holidays have been largely ignored. This report attempts to enhance the understanding and extend the knowledge of these anomalies in the Singapore stock market and provide some possible explanations for such anomalies.
The focal point of our pre-holiday effect test is the public holidays in Singapore that would trigger off no trade on that day. Daily stock returns using the SES-All Share index are collected over the period 1989-1994. As for the firm size and January effects, we utilized monthly stock returns of 100 firms listed in the SES over the period 1991-1995.
The findings indicate that the firm size and January effects exist in the local market. High mean returns accruing to the SES-AU Share index on two trading days prior to holidays substantiates the existence of the pre-holiday effect. A few theories have been forwarded
as possible explanations for these anomalies-----tax-loss selling, transactions costs,
information effects and statistical and/or data problems.